St. Louis Public Radio News
Thu September 17, 2009
Despite his ambitions, McKee has a long way to go to overcome financial and political barriers
By Adam Allington, St. Louis Public Radio
St. Louis – Developer Paul McKee wants to pour $8 billion into a two square mile section of north St. Louis, and his proposal relies on something called tax increment financing.
St. Louis Public Radio's Adam Allington concludes our four-part series on McKee's proposal with a look at how TIFs are supposed to work, and what happens when they don't.
The language of urban development can be confusing, with the acronyms and different financial mechanisms, but when you get right down to it, it's not so hard to grasp.
Developer Paul McKee wants to spend $8 billion to rebuild part of north St. Louis. A key part of his plan relies on something called "Tax Increment Financing," commonly referred to as TIF.
Now, say that I'm a developer and I want to build a shopping center in a part of town that really needs the jobs, I approach the mayor, played here by my colleague Maria Altman.
Maria: "Hi there."
Adam: "So, Maria to get this shopping center off the ground I am going to need some cash."
Maria: "How much cash?"
Adam: "Well for starters lets say about $20 million."
Maria: "What? We don't have $20 million."
Adam: "Now, don't worry, I'm not asking the city to front the money but if you'll just sign this TIF contract and agree to be my backer...I can raise the money on the bond market."
Maria: "Ok but what happens if the bond market isn't buying, or your shopping center goes belly up?
Adam: Don't worry, we've crunched the numbers and we're like 75 percent sure this project will be huge seriously, its practically a done deal.
Maria: Well...if you're so sure, I suppose so.
Adam: Thank you very much.
OK, so what we'll do is we'll take a portion of the taxes created by my shopping center over time this is the increment and we'll slowly pay back those investors and since the city's not getting much tax from this property now anyway, it won't miss what it doesn't already have.
But St. Louis TIF Attorney Bill Kuehling says these kinds of arrangements, where the city backs bonds for a private development, are not that common.
"Well it is rare for a good reason because at times it ends up being called up to be paid and the city is on the hook for the repayment," notes Kuehling.
Kuehling says that is exactly the spot St. Louis still finds itself after the city agreed to back $15 million in bonds for the ill-fated St. Louis Marketplace strip mall.
"That was one of the first the city ever did, the city agreed to back it up with their general fund. And what happened there was a lot of changes in retail occurred and a lot of spaces went vacant," said Kuehling.
St. Louis is also on the hook for $13.6 million to cover the shortfall from the TIF-funded Renaissance Grand hotel, and $14.5 million for St. Louis Centre, formerly owned by the now-bankrupt, Pyramid Companies.
Now, developer Paul McKee is asking the city to back $200million in city-backed loans to kick start his north side project. Many aldermen say they like his vision but are reluctant to put the city's credit on the line yet again. But McKee says his project is different.
"We want to bring jobs back into the city, that's what we do," said McKee.
"So, you can't do that without some major land areas to do that. So that's what really differentiates us from everything else we have the land and we want to bring jobs, and the housing will follow."
McKee predicts property values in the development zone will quadruple over three decades. But others question his math.
"Those were the old days, we're talking about the new days now," said business analyst Juli Niemann. She said the amount of money McKee would need to borrow just isn't available any more.
"Bottom line, there is very little resale value in most of the properties that he has acquired," Niemann said. "Given the current status of real estate, no lender is going to go in there and give you loans on what you estimate the property is worth, it's what is the resale value?'"
But St. Louis developer Mike Roberts, who is not involved in McKee's project, said many urban development projects begin during recessions.
"In the timeline it takes for him to get these properties back on their feet, the development of downtown will continue to grow," Roberts said. "Residential will continue to develop downtown and what we'll see is a gradual growth in the core of St. Louis, which will be positive [For McKee]."
Until now Paul McKee has been relatively spare with the specifics of his project, speaking instead about an overall vision of green buildings, open space, and high-paying jobs.
As he begins the process of pitching his ideas to city officials at next week's TIF Commission meeting, he'll have to convince them that his ideas are fundable and in the best interest of taxpayers, or risk, as he says, "becoming the biggest slum lord in the Midwest if this plan doesn't fly."